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Competitive Advantage
Competitive Advantage - Ability to be consistently more profitable than their competitors in the same market or industry. Persistent Performance Differentials are a result of Competitive Advantage. * Have to be a genuine legitimate advantage. Not luck or windfall or seasonal or anything else. * Not mere differences * Not attractive industry characteristics * Not competitive necessities * CA is necessary for a firm to be MORE profitable Productivity Differentials within the Industry * Productivity = ratio of output obtained to input used. * Difficult to compare since firms operate on different scales. * TFP(Total Factor Productivity) is used instead which is a productivity measure under the assumption that firms are using the same input. * Measuring productivity not profitability. Not a proxy for profitability. * Productivity is largely different across firms in the industry and they tend to persist. And high productivity firms tend to last longer. * Productivity differences tend to lead to profit differences. * Firm-level attributes dictate productivity Sources of Competitive Advantage * Resource + Capabilities = Advantage * Resources are inputs and/or specialised assets * Capabilities are what a firm can do much better than others or is unique * Combining these gives the firms advantage - consistently higher profits * This is a resource-based view of the firm * Competitive advantage is a method of using assets to create value and capture them. It can be used to increase quality(or niche) for consumer or reduce cost. * Not what you have, but what you do with it. Sustainable Competitive Advantage * Hazy? No. HAEzI. * Heterogeneity ** Products are different enough that you retain an advantage. Differentiation essentially. Differentiation has to be significant for competitive advantage to be significant. * Imperfect Imitability ** Difficult to imitate hence competitive advantage is sustained. Can do this through specialised tech, synergy, corporate culture, patents, complicated strategy, experience, laws, network, scale, reputation, switching cost, etc. ** You don't know you're behind(Perception). You don't know what to improve(Inspiration). You don't want to improve(Motivation). You don't know how improve(Implementation). * Early Mover Advantage ** First usage/domination of asset resources can be a huge advantage. Particularly for natural resources. ** Can dominate new market. Can get economies of learning more quickly. Can set entry barriers. Can build a reputation/brand first. ** Can be locked into old tech/methods if staying incumbent for too long. * Appropriability ** Quality of being imitable or reproducible ** Imperfect Mobility ** If another firm can't imitate you they can't take away/imitate your core resource or capability. ** Co-specialisation ** Resources/Assets that produce more benefit when employed together instead of being individually employed Strategic Positioning * Cost Based Advantage ** Price reduction < Cost reduction = Profit gained ** Size, scale, tech, network, management * Benefit Based Advantage ** Price increase > Cost increase = Profit gained ** Physical characteristics of product, Product quality, After product service, Perception/Image, Presentation * Niche/Differentiation Based Advantage ** Differentiate significantly ** Target a large niche ** Produce at low enough cost ** Have to be very very focused. Have to say NO to a lot of things.